Public Bill Committee

[John Robertson in the Chair]

Clauses 24 to 28 ordered to stand part of the Bill.

Clause 29  - Sections 25 to 28 etc: supplementary

Ian Murray: I beg to move amendment 76, in clause29,page25,line26,at end insert—
‘(1A) Prior to secondary legislation making or amending the regulatory provision coming into force, the review set out in sections 25 to 28 and this section shall be subject to public consultation with specific reference to the views of businesses, business organisations, civic organisations and trades unions, and any such other organisation which the Secretary of State considers to be appropriate.”
I am sorry to inform the Committee that I did not have time for lunch. I was too busy reporting grey squirrels to the Serjeant at Arms. [Hon. Members: “We do not need to do so any more.”] It may not be a regulation of this place but it is my moral duty to report these things.
I move on to amendment 76 in this fun-packed afternoon in the Small Business, Enterprise and Employment Bill Committee. The amendment would ensure that the review by the Secretary of State of the original legislation included the views of businesses affected by that legislation and its possible repeal and amendment. I am going for a hat trick, if the Minister can agree with this, as he agreed with our previous two amendments. He even tweeted about our previous amendment over lunch, although he forgot to mention in his tweet that he agreed with it. This would be a hat trick of victories for the effective Opposition.
Labour is the party of small business. That is why we tabled the amendment. We want to make the Bill, which is good for small businesses, even more effective. We recognise that it is important to ensure that all new regulations affecting business are reviewed regularly, that regulations are effective and necessary and that businesses are not subject to unnecessary burdens. As my hon. Friend the Member for Streatham (Mr Umunna), the shadow Secretary of State for Business, said on Second Reading:
“We also support the proposed statutory review provision for new regulations that affect businesses.”—[Official Report, 16 July 2014; Vol. 584, c. 920.]
I hope I do not have to repeat that 20 times.
We believe that there is the need for a formal role for stakeholders in the review of secondary legislation. Businesses and other relevant stakeholders should be able to shape the Government’s thinking on business policy in general and these sunset-like provisions in particular.
Therefore the intention of our amendment is that, prior to any secondary legislation being implemented or amended, the review of the original legislation would include the views of businesses and all other key stakeholders affected by that legislation. We are not suggesting a full public consultation exercise, but an appropriate consultation none the less for Ministers and officials to speak to stakeholders and the affected organisations and businesses. They would therefore fully understand the impact and the burden of these regulations directly on business.
An opportunity must be made available for businesses to say that they agree with what the Government are trying to do, or that they disagree and want the Government to consider something else. Using businesses as the arbiters of secondary and primary legislation offers the opportunity to shape any regulation better as they will ultimately be affected by it. We need to ensure that business policy is not dictated to businesses, but is produced in full consultation with them.
With this amendment, we want to put on record the importance of consultation with businesses affected by secondary legislation. There is a lot of secondary legislation in this Bill that the Minister and the Secretary of State will introduce either as the Bill proceeds through Committee or when it receives Royal Assent. We know that businesses require the regulatory environment to be as clear cut as possible so that they can plan and adapt, and they can help inform the Government on what that regulatory landscape should look like. If the Minister can provide assurances to us that engagement with key stakeholders will be an important part of Ministers’ duty to review, we will not press the amendment to a vote. However, it would be interesting to hear about the Minister’s plans for the review of secondary legislation.

Matthew Hancock: I will speak about the amendment and the clauses that we have agreed should stand part. Clause 29 is supplementary to those clauses. The purpose of this group of clauses is to ensure that all regulations—unless they are covered by an exemption—have an automatic date for review rather than an excessively burdensome impact when they are ineffective or out of date. That is a very sensible proposition. We have introduced that principle administratively in this Parliament, and many of the regulations we have brought in have a review date. This sets it in statute.
The red tape challenge has demonstrated the importance of keeping regulation under review, with thousands of regulations being reviewed and many scrapped or improved. Our debate on the previous set of clauses demonstrated that some regulations just need to be got rid of. Even if Opposition Members think that it is only a legislative tidying-up exercise, having regulations on the statute book that are no longer followed is not a good way to govern a country.
The Bill will ensure that all new regulations include a statutory review provision, except where it is not appropriate. We intend the new obligation to have a broad application to all secondary legislation that regulates business and civil society organisations. That includes legislation implementing EU obligations and domestic measures, and the detail is set out in the clause. We have proposed exemptions for certain categories of secondary legislation—for example, legislation relating to tax, tax administration, spending and procurement—and the Bill contains provisions to set out those excluded areas. Many of those categories have their own system for scrutinising and reviewing legislation; for example, tax legislation is scrutinised and reviewed by the Office of Tax Simplification. We also exclude temporary measures since that is not required if a measure needs to be scrutinised after a period of time.
In conclusion, we recognise the need to keep the legislation under review and up to date. We have already taken action but are now putting it on a statutory footing. I am grateful for the amendment because it has given me the opportunity to set out how we will include formal consultation where proportionate and appropriate. I accept the spirit of the amendment, but it has a technical deficiency which may mean that all new regulations, as opposed to the review of them, need a consultation. I hope that the Opposition acknowledge that we will have consultations where appropriate. Given that and the amendment’s technical deficiency, I hope that they will withdraw it. I welcome the cross-party consensus on these clauses.

Ian Murray: It is great that the Minister can accept the principle and spirit of our amendment, even if he cannot accept the amendment itself. He just cannot bring himself to accept it and include it in the Bill, but he has been very helpful and I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 ordered to stand part of the Bill.

Clause 30  - Definitions of small and micro business

John Robertson: I call Toby Perkins.

Hon. Members: Hooray!

Toby Perkins: I am glad to see that my colleagues had such a good lunch.
I beg to move amendment 39, in clause30, page26, line7,after “business””, insert ““medium-sized business”, “large business” or “super corporate””.

John Robertson: With this it will be convenient to discuss the following:
Government amendment 22.
Amendment 40, in clause30,page26,leave out lines 10 to 18 and insert—
““Micro business” means a business with 1-9 employees
“Small business” means a business with 10-49 employees
“Medium-sized business” means a business with 50-249 employees
“Large business” means a business with 250-1000 employees
“Super corporate” means a business with over 1000 employees”.

This amendment proposes to create a total of five definitions in UK law based on the measure of employee head count.
Government amendment 23.
Government amendment 24.
Government amendment 32.
Government new clause 3—Small and micro business regulations: further provision.

Toby Perkins: The amendment is an opportunity to embrace and support the principle of clause 30, but to extend the definitions. We very much support the basic concept of the clause. All hon. Members recognise that businesses face different challenges at each point on their life cycle or growth journey. My hon. Friend the Member for Streatham and the Minister have both spoken about the definition of the term “small and medium-sized enterprise”, which, in a single stroke, can include a window cleaning business that employs one person and a manufacturing firm with 240-odd employees. In some ways it is damaging, and it is certainly lazy, because it does not take into account the fact that businesses face different challenges at each point along the path.
I spent my entire life in the private sector before coming to this place. I worked for a business that had 60 or 70 employees when I started and 300 or 400 when I left eight years later. That business faced different challenges at each point on its journey. The purpose of the clause is to recognise those different stages so we are able to consider who is affected by the legislation that we propose. We must have clear definitions when we make policy.
The Government, like the pervious Government, have introduced policies from which micro-businesses are exempt, and tax breaks that are particularly beneficial to micro-businesses. It is important that we put those definitions in statute so that we can introduce policy that recognises the panoply of business set-up options and the different points along the business life cycle.
We understand the need to make regulations proportionate. We must not place unnecessary burdens on businesses in general and in particular small businesses, which find it difficult to absorb new costs. In contrast to what the Minister rather ungenerously said earlier, of course we recognise that things on the statute book that are redundant or out of date should be removed. It is wrong to have out-of-date laws that everybody ignores simply because the Government have not tidied them up. We do not dispute that it is sensible to do that, but we must not confuse it with making life easier for businesses. If we remove a law that nobody observes, let us not pretend that we are doing it to lift burdens on businesses. That is the point that we were attempting to make, and I am glad to be able to put that on the record.
Defining in law what is meant by the terms “small business” and “micro-business” will make it possible for future Governments of any colour to exempt enterprises of that nature from new regulatory obligations. It is important that we get away from this lazy SME distinction. We must instead recognise that there are micro-businesses with fewer than 10 employees, in which the owner knows every person in the business, and in which each of the members of staff do a variety of different jobs. There are businesses that are moving to the next stage and have between 10 and 50 members of staff. One stage for someone who sets up a business is when they get from the first person they employed to the first person employed whom they do not already know. The next stage is when they cannot necessarily name everyone in the business and what they do. A business will move through stages, from being a small business to a medium-sized business, to a manufacturing firm with 200-odd employees that distributes products around the world. That may be a medium-sized business; it would certainly be among the largest businesses in Chesterfield and, indeed, in any of our constituencies.
When we get beyond a medium-sized business, we have already covered 99% of all businesses. In practical terms, we then get to what are currently described as large businesses, with more than 250 employees. That could be a business of 300 or 400 employees—perhaps a leisure business such as Alton Towers or a supermarket such as Tesco. They are all lumped together but face very different challenges. That is the principle of our amendments.
As originally written, the clause used the definitions of small enterprise and micro-enterprise contained in EU Commission recommendation 2003/361/EC, under which a small business is defined as,
“an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million.”.
Likewise, a micro-business is defined as,
“an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million.”.
The sum effect of Government amendments 22, 23, 24 and 32 and new clause 3 is to jettison those definitions and replace them with a more complex system.
Since the clause was written, the Conservatives have embarked on a new strategy of expressing the foolishness of the fruitcakes and loons in the UK Independence party by copying all their policies. They say that imitation is the sincerest form of flattery; we will see where it takes the Conservative party to continually deride a party at the same time as copying its policies. In that light, it is important to recognise that what is being proposed is the jettisoning of the EU Commission recommendation, to be replaced by what appears to be a slightly more complicated definition.
Under Government amendment 22, the headcount part of the definition stays in place. Small businesses still need fewer than 50 employees, and micro-businesses still need fewer than 10. However, under Government amendments 23 and 24, the limits on the size of balance sheet or annual turnover will now be defined by the Secretary of State at a time of their choosing. Limiting the definition to being about employees, imperfect as that is, is probably the clearest way of achieving the definitions. I am worried that, far from bringing the clarity that the situation requires, it brings confusion and raises a worrying possibility that the definitions in law may be stretched or redefined by a future Government to bring different companies into new regulations they may set. It is important that we have specific definitions.
The new clauses are limited, only setting down definitions for two types of business, leaving all others unclear where they sit in the Government’s eyes. Even the European directive, on which the Government previously relied, included a third category of a medium-sized business. The Government were right to define small and micro-businesses but our amendment seeks to define medium-sized and large businesses, and super-corporates —companies with more than 1,000 employees—which is more helpful and will be of great assistance to future Governments.
Although we agree with the principle of laying down those definitions in law, the Government have not yet got it quite right. Amendments 39 and 40 propose five new definitions of business size. A micro-business would have one to nine employees; a small business, 10 to 49; a medium-sized business, 50 to 249; a large business, 250 to 1,000; and a super-corporate would have more than 1,000 employees.
There are four key advantages to that approach. Every business in the UK will know where they stand. There will no longer be any confusion for those who employ more than 50 staff, as there would be under the Government’s proposals. The criteria used are simpler and more clearly understood than the Government’s. By just sticking to employee headcount, the definitions remain timeless, without issues of inflation and currency changes altering their meaning. The definition is not open to meddling or interference from a Secretary of State or anyone else. That gives added certainty to British businesses.
By creating a total of five definitions in UK law that can be relied on in subsequent legislation, the amendments allow the Government to take greater account of business reality when setting policy, for example, when subjecting only the largest corporations to certain regulation or exempting the smallest businesses from new legislation. I hope the Minister will look kindly on that helpful attempt to tidy up the legislation and I look forward to the support of the Committee on that.

Anne Marie Morris: First, I commend my right hon. Friend for bringing forward legislation that seeks to clarify the definitions of a micro-business and a small business. The Minister and I have had many conversations about that and I am pleased to find that he is listening. I also commend the Government for using a UK rather than a European definition. I take issue with the shadow Minister. It has nothing to do with UKIP and everything to do with the fact that the UK is a very different country from Germany, France and so on. The Government have also included an amendment to give them the discretion to review and change that, which is absolutely what we need, so I support the Government’s approach.
However, in many ways I share the concern of the shadow Minister on the point of defining medium and other. It is clear that we need to segment our business community so that we can target policy making appropriately. It is not just about exclusions and exemptions. My challenge to his proposals is that once beyond small it is simply a matter of size and turnover. We are then getting into the realm of businesses that are AIM listed or fully listed. We are looking at very different beasts. While I understand the intent behind what he is trying to do, I am not sure that is quite right.
What might be helpful, if the Government allowed themselves discretion, is to introduce in future other definitions that might be helpful to assist in policy making. That might also include a sole trader, because the shadow Minister clearly identified that SME is 99%. The next level of small is 95% and micro is 90%. In fact, the individual sole trader accounts for about 70% of businesses in this country.
So looking at those different segments and the appropriate policy making would be a way forward. My proposal would be for the Government to allow themselves even more flexibility than now. This is a serious issue which could impact on decision making and policy making, whatever the Government.

Toby Perkins: I am interested in what the hon. Lady is saying. She speaks with great passion on the subject of small businesses. I believe it is still Government policy to trade with countries across Europe. When we are defining how our markets operate, those policies will often reflect a need for companies from other countries to trade with us here in the UK. Is she concerned that the greater discretion she talks about might mean that we end up disadvantaging British firms, with our firms having to comply with regulations that our competitors in Europe do not?

Anne Marie Morris: The short answer is no, because there is some confusion. The EU has its own definitions. In fact, it is currently going through a process of reviewing whether its definitions are right. It uses those definitions for its initiatives and schemes which then apply to a number of different countries. That is a different issue from the individual approach that each country needs to take to ensure that its businesses are best served by their local Governments. I understand the hon. Gentleman’s point but I do not think that problem would arise, because the EU retains its ability to make its rules for its schemes. EU definitions may be important but that should not drive what we do here in the United Kingdom.
In the UK, we have not always adopted European definitions of businesses. We certainly do not do so in the Department for Work and Pensions; we use a much smaller definition of micro-businesses as being smaller than five employees. This definition is used in many different ways, and what we define at this point in time will be important in 17 different Departments. Frankly, it is a bit of a mess at the moment.
Despite the fact that we have a review clause in the Bill, we have immediately adopted the EU’s current definitions with the turnover amendments that the shadow Minister referred to. We are talking about businesses with 10 employees and I am concerned that that definition is too big. I will explain why. Whatever definitions we choose, the importance is that they look at and reflect the life cycle of these businesses. Policy making must help these businesses as they grow. A business with up to 10 employees will face very different challenges to one with just two or three employees. By and large, a business with 10 employees will have at least one or two people with some expertise. They may have someone who knows about finance, without being called a finance director, and also someone technical. In a business with only one, two or three employees, everyone is working hand to mouth.
Quite a bit of research has been done into the life cycle of these businesses and appropriate definitions of them. Over the last decade, nine countries—many of them using the nought to 10 definition—have reviewed their definitions and decided that nought to five is more appropriate for policy making. Those countries include Australia, Canada, India—the old colonial countries, which are not that different from us in many ways—as well as Japan, Norway, the Czech Republic, South Korea, Jordan, Costa Rica and others. We must ensure that the definition is right. As we go through the rest of the Bill, I urge the Government to look carefully at whether we have the right start point. Whatever that start point is, it will always be harder to move it once we have it.
As the shadow Minister said, turnover is helpful for the definition. However, research indicates that we cannot entirely classify a micro-business or small business by its turnover. We therefore have to come up with a proxy. All the research I have read indicates that turnover is not helpful and we are better off sticking with the number of employees for the definition.

Toby Perkins: The hon. Lady is making an important speech. To reinforce that point, I add that the type of business makes a difference. A service-based industry would probably turn over less, but might be very large and a majority of turnover would be profit, and similarly in the manufacturing sector there might be a very large turnover but not all that many people. That is precisely why we have proposed making it a lot narrower and neater.

Anne Marie Morris: I understand entirely where the shadow Minister is coming from. If the Minister has some time to read on the train, I commend to him a report produced in November 2011 by the all-party parliamentary group for micro businesses, which I chair, entitled “The Importance of a Definition for Policy Making”. We got input from 80 business schools across the country and we had lead articles written by LSE, Imperial, Lancaster and Manchester Metropolitan universities. There was agreement that nought to five was more appropriate than nought to 10. Indeed, the London Business School concluded that the use of the EU definition may explain why
“we are good at encouraging people to establish a business, but less proficient at producing significant numbers of high growth enterprises”,
because of the difficulty of focusing the help on where it is really needed. I commend the Government for what they are doing and for giving the Government the power to amend, but I strongly urge the Minister that, before this is committed to legislation, he again reviews the start point that he is setting in the Bill.

Matthew Hancock: The Government amendments are designed to introduce a free-standing UK definition of small and micro-businesses and largely replace the existing clause 30. That means that the definitions will be easier to understand and will work effectively in a UK context. I firmly believe that we in the UK have the full capacity to define these figures for ourselves. Before turning to the detail of the amendments, I pay tribute to my hon. Friend the Member for Newton Abbot. Without her work and her interventions, this clause would not be in the Bill. It is singularly down to her efforts that it is. I therefore take no personal credit for the clause but pass it all to her.
Clause 30 is very important for a couple of reasons. First, it means that in law we will have a consistent definition of what small, micro, medium and large enterprises are. I have long argued that the term “SME” should be abolished. I think that that is the position of both Front-Bench teams and it shows something that we cannot manage it. People automatically fall back on SME as an acronym but the difference between a company of four or eight people and one of 204 or 208 people is enormous. It is hard to legislate for micro-businesses without a definition in law, and that is why we have brought this in.
On the point about having five or 10, I will read my hon. Friend’s report. The reason we went for 10 is that it is used around the world, in Brazil, the United States and much of the EU, but I recognise that five is used elsewhere and there is a debate between the two. The reason I prefer the larger to the smaller is that the most frequent use of this legislation will be to set out micro exemptions from regulations. On balance, I would prefer that a micro exemption covered all the under-fives and all the under-10s, rather than the smaller subset. I take her argument that, when it comes to grant support and focused positive support, we want the definition focused on those that really need it, but given that, at least in the first instance, the main use of this clause will be for exemptions, I would rather they covered a larger subset than a smaller one. Having said that, it is undoubtedly a judgment call. There are arguments on both sides, and we should be open-minded. I will explain why we came down with 10, rather than five.

Toby Perkins: I agree with what the Minister is saying, but will he address the point that the hon. Member for Newton Abbot and I made about turnover definitions being subject to what a business is doing? Would it not be neater just to make it an employee definition?

Matthew Hancock: That is also a reasonable argument, and it is a balanced decision. On balance, a definition that is broader than headcount alone is the right one because different types of businesses in different sectors can be of a different scale with very different headcounts. A financial business could have an enormous turnover with a small headcount, for instance, whereas a retail business or a business in the care sector could have a much lower turnover on a much bigger headcount and therefore not have the financial resources that a business with a smaller headcount but a higher turnover has to be able to deal with a load of regulations. There is a balance to be struck.
I take the hon. Gentleman’s point about inflation meaning that the nominal value of a turnover measure needs to change over time. Inflation is now low and relatively stable in the UK—it is 1.2% at the moment. A 2% target has been in place for more than a decade, and before that the target was 2.5%. We have had almost 20 years of low inflation, which means that only occasional revisions would be needed. It is therefore not unreasonable for revisions to be made through secondary legislation.
I take the hon. Gentleman’s point, and I have listened carefully to the arguments that he and my hon. Friend made. Their arguments have merit, but on balance it is better to have a dual definition. Although people tend to look to the headcount first, the turnover definition will ensure that there are no unintended consequences due to unusually shaped businesses.

Anne Marie Morris: I hear what the Minister says, but will he consider giving himself the flexibility of including wording saying that the turnover can be zero? It is still at the discretion of the Government of the day, which is what he is trying to put in the Bill. If he extended his freedom of movement by making it clear that turnover can be zero, were he to choose to review this he would have the flexibility of changing the definition through secondary legislation, rather than through primary legislation.

Matthew Hancock: I will think about what my hon. Friend says. Businesses with a turnover of zero are not going to last very long if turnover continues to be zero, especially if they have a very high headcount. As drafted, there is some flexibility for Departments to adapt the definitions where needed.

Toby Perkins: I will bring some experience to bear that has particular relevance to this topic. I worked in the recruitment industry for many years. For permanent recruitment, businesses in the sector tend to have a very low turnover because it is just a fee attached to the recruitment, which can be quite profitable with a relatively low turnover. Similarly, for temporary recruitment, businesses tend to have a very high turnover. Those two businesses, which may be equally profitable and with equal numbers of employees, will be treated differently under this definition.

Matthew Hancock: I think that can be taken into account by the flexibility within the existing definition. In a sense, the hon. Gentleman has also made the argument for why there should be a wider definition than just the headcount.
I will now address the Opposition amendments. There is cross-party agreement on this subject, which I welcome. Because the policy intent behind the definitions, at least in the first instance, is to facilitate exemptions, or to enable other proportionate treatment, it is not necessary to extend the definition to include very large businesses. Large businesses are, in effect, defined in the Bill by merit of not being micro, small or medium-sized businesses—the rest are large businesses. Our exemptions tend to be at the smaller end. They tend to be micro-exemptions rather than extra burdens for the very largest businesses. I hope the purpose of the amendments is not to turn business on business and separate out super-large and large businesses in order to take down any particular size of business. The amendments are not therefore necessary.

Toby Perkins: We discussed measures on Tuesday that proposed a late-payment requirement for businesses with more than 250 employees. The Government have done many things, including through the prompt payment code. At the moment we have a definition that means that businesses either have more than 250 employees or are in the FTSE 350. There is nothing in between. It may be about exemptions, and it may be about new requirements, but it is also about recognising the reality of what businesses want.

Sitting suspended for a Division in the House.

On resuming—

Matthew Hancock: Having explained why we should resist the Opposition amendments, I just want to deal with the point that my hon. Friend the Member for Newton Abbot made about sole traders. This definition will be used in statute for exemptions in the first instance. They will, of course, be covered, whether it is five or 10. Sole traders can be covered for administrative purposes like business support. They can already be covered separately when issues are administered. Therefore I do not think it is necessary to have a definition of a sole trader set out here, not least because a sole trader with zero employees is a natural person in law. I take my hon. Friend’s point about sole traders being the ultimate small business. However, I considered that point before coming forward with these proposals and I do not think that it is necessary to include them in this definition in law. Having dealt with that final point, I look forward to the Committee’s support for the Government amendments.

Toby Perkins: I listened carefully to what the hon. Member for Newton Abbot and the Minister said about our amendment. I am not entirely convinced that creating a definition for large businesses and businesses beyond that would be unhelpful. It was somewhat revealing that the Minister said that if the Government created these definitions they would have to introduce some legislation that would be bad for them. It betrays a view of Government, which is that all that they ever do is make things worse for people. That is a view of life that some on the right of the political spectrum have held in the past. I should have thought that the Minister might take a more positive view and say that if they create a definition of large firms, medium-sized firms and super-corporates, they might be able to direct more accurately their policy of recognising the challenges facing those organisations and think about how they might help them better. It is somewhat disappointing.
I accept, as both contributors said, that these definitions are always imperfect and that we should recognise that turnover is also a factor in the size of a business. I think that the definitions we proposed were neater. I look forward to working with the Government to see whether we can come up with definitions in which everyone can have confidence. As we have a great deal to get on with this afternoon, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 22, in clause30,page26,line9,leave out subsections (2) and (3) and insert—
‘(2) In the underlying provision “small business” means an undertaking other than a micro business (see subsection (3)) which meets the following conditions (“the small business size conditions”)—
(a) it has a headcount of staff of less than 50, and
(b) it has—
(i) a turnover, or
(ii) a balance sheet total, of an amount less than or equal to the small business threshold.
(3) In the underlying provision “micro business” means an undertaking which meets the following conditions (“the micro business size conditions”)—
(a) it has a headcount of staff of less than 10, and
(b) it has—
(i) a turnover, or
(ii) a balance sheet total, of an amount less than or equal to the micro business threshold.
( ) The Secretary of State may by regulations (referred to as “the small and micro business regulations”) make further provision about the meanings of “small business” and “micro business”.
( ) This section and the small and micro business regulations are to be read subject to any modifications made by the underlying provision in any particular case.”

This amendment defines “small business” and “micro business” by reference to staff headcount and other conditions set out in subsections (2) and (3), replacing the previous definition referring to Commission Recommendation 2003/361/EC. It also gives the Secretary of State power to make regulations further defining these terms.
Amendment 23, in clause30,page26,line19,at end insert—
““balance sheet total”, “headcount of staff”, “micro business threshold”, “small business threshold” and “turnover” have such meanings as may be prescribed by the small and micro business regulations;”

This amendment stipulates that particular terms used in amendment 22 (such as “headcount of staff” and “turnover“) are to be defined in regulations made by the Secretary of State.
Amendment 24, in clause30,page26,line23,at end insert—
““undertaking” means—
(a) a person carrying on one or more businesses;
(b) a voluntary or community body within the meaning given by section24;
(c) a body which is formed or recognised under the law of a country or territory outside the United Kingdom and which is equivalent in nature to a body falling within the definition of voluntary or community body.
‘( ) The small and micro business regulations are subject to negative resolution procedure.”—(Matthew Hancock.)

This amendment defines “undertaking” as used in the definitions of “small” and “micro” business. Undertakings comprise individuals, companies, and other entities carrying on business and voluntary or community bodies (defined in clause 24) and foreign equivalents. It also applies the negative procedure to regulations under amendments 22 and 23.

Clause 30, as amended, ordered to stand part of the Bill.

Clause 31  - CMA to publish recommendations on proposals for Westminster legislation

Question proposed, That the clause stand part of the Bill.

Jo Swinson: It is a great pleasure to serve under your chairmanship, Mr Robertson, as you are my parliamentary neighbour. I am delighted to begin my contributions to the Committee on the Competition and Markets Authority measure in clause 31. I very nearly had the opportunity to speak on Tuesday morning on the prompt payment measures, but thanks to the generosity of the hon. Member for Edinburgh South and his directions to my hon. Friend the Minister, I did not have that pleasure.
The Government believe that competition and competitive markets can help consumers and fuel economic growth. The clause will ensure that proposed laws are competition friendly, which will benefit consumers and the wider economy. The clause amends section 7 of the Enterprise Act 2002, and gives the Competition and Markets Authority a new power to make recommendations on the impact of legislative proposals on competition, and a duty to publish them.
The Federation of Small Businesses welcomed this measure and its potential benefits for small businesses. The Government stated in our strategic steer to the CMA that we see
“the CMA playing a key role in challenging government where government is creating barriers to competition.”
The clause builds on the ambition set out in the strategic steer by establishing a clear means for the CMA to set out its views on proposed legislation. Its recommendations must be made to the Minister proposing the legislation and brought to the attention of other interested parties. That transparency will ensure that there is further pressure on the Government to consider competition at the design stage of new policy and legislation.
In recognition of the CMA’s independence, the use of the power will be entirely at the CMA’s discretion. No one will be able to require it to make recommendations or, conversely, prevent it from making recommendations. It will be for the CMA to decide whether the effect of a legislative proposal on competition warrants its using the measure.
A key principle underlying the measure is that it is much better for the Government to consider competition before policy gets to the stage of legislative proposals. The CMA stands ready to share its expertise with the Government. The earlier on in the process of policy development it is able to do that, the better. It is significant that the Government committed in the strategic steer report to adopt the CMA’s recommendations for improving competition
“unless there are strong policy reasons not to do so.”
The intention behind the measure is clear. We want the effect on competition to be properly considered before Government legislation is introduced. Therefore, we want the independent experts to hold us to account publicly if they feel that the proposed legislation could create barriers to competition.

Toby Perkins: The Opposition welcome the clause, which gives the Competition and Markets Authority the power to publish recommendations about the effect of legislative proposals on competition. It is right that the use of the power will be at the discretion of the CMA, that it will apply to any proposed primary or secondary legislation and that the recommendations must be published in such a way as to bring them to the attention of the persons likely to be affected by them.
The Labour party strongly believes in having fair and free markets. That will be an emerging theme, not just of the Bill, but of much of what we will discuss over the next seven months. Consumers, including small businesses, need markets with proper competition and a range of options and choices to get a good deal. For example, our pledge to freeze energy prices until 2017 would save the average small business £1,800 but, more crucially, it will give us two years’ breathing space to reform the market and introduce genuine competition so that it works for consumers as individuals and as small businesses. That is also our approach to banking. We want to stop the same old big five banks from dominating the market and barring new players from entry, so we are committing to growing a new generation of local banks and supporting alternative forms of finance such as online peer-to-peer lending. The new power and responsibility for the CMA could help a future Labour Government to identify other markets that are vulnerable to becoming oligopolies and suggest action.
We will be supporting the clause but it would be helpful if the Minister, who has taken her place to a great fanfare—she was generous to remind us that we almost had the same pleasure on the opening day of proceedings—would clarify how the clause will work in practice. Will the CMA pay particular attention to barriers to market entry for new start-ups, and, given that consumer protection and promoting competition are two of its core aims, will it assess the impact of closed markets on vulnerable consumers? How will small businesses and, specifically, individual start-ups be supported by the clause? Will they have the right to advocacy and advice if they feel they are being excluded from a market? I look forward to the Minister’s response and to supporting clause 31.

Jo Swinson: I welcome the cross-party support for clause 31 expressed by the hon. Member for Chesterfield. I hope it is a sign of things to come for the rest of the clauses that I shepherd through the Bill. He posed a couple of questions about the way that the power will be exercised by the CMA. I reiterate the issue about its independence, which he mentioned the importance of, and that will be up to the CMA to do. It has already set out its approach to promoting competition, published its report in April 2014 and said that it would prioritise according to its principles of whether something has a degree of impact, the strategic significance, the risks and the resources. Those broad headings have an impact on a wide range of issues, including many that the hon. Gentleman mentioned, such as barriers to market entry for new start-ups. That is particularly about competition and the impact on vulnerable consumers. He may be aware that the Government have recently taken other measures, particularly to protect vulnerable consumers, such as the new misleading and aggressive practices secondary regulations, which complement existing consumer legislation and provide a lot of additional protection. That is hugely important.
On the issue of small business and competition, although the Bill can help small business, there are measures in the Consumer Rights Bill, which is in the other place at the moment, about empowering small businesses to take competition actions through the private courts. The provision is one of many measures that the Government is putting forward to ensure that we can have a more competitive economy, recognising the benefits to business and consumers, and ensuring that we build a stronger economy. I am glad that we have the Opposition’s support for the clause.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Clause 32  - Exemption from liability for bodies concerned with accounting standards etc

Question proposed, That the clause stand part of the Bill.

Jo Swinson: The clause is quite specific and technical, and its purpose is to deal with the financial reporting and the regulation of accountancy, audit and actuarial services. In 2004 the regulatory landscape for accountancy and audit changed. The Financial Reporting Council, which now makes and enforces accounting standards, assumed the functions of the Accountancy Foundation, which made and enforced professional standards for accountants and auditors. The expanded FRC is partly funded by a grant from the Secretary of State.
As part of that change, the Companies (Audit, Investigations and Community Enterprise) Act 2004 provided an exemption from liability for bodies carrying out certain regulatory functions. That exemption applies only to bodies that receive a grant from the Secretary of State and lasts for 12 months after the grant is paid.
We think that it is important to have an exemption from liability. The FRC must be able to act decisively and courageously without being threatened with legal action. It must be able to attract and retain top-quality people who are credible with business, the profession and the investment community. We do not want the FRC to be afraid of legal action. We do not want it to feel that it has to collect more information than it would otherwise need, or take longer to make decisions than would otherwise be the case. That kind of over-regulation and excessive caution benefit no one.
The 2004 Act provided that the exemption applies only where a grant is received. We do not think that that constraint is any longer appropriate or necessary, particularly where, as is now the case, the body is otherwise self-funding. It has led to an anomalous situation where the FRC gets a relatively small grant each year, merely so the exemption can apply. That grant is less than 3% of the overall funding of the FRC’s core operational costs.
Although we have not yet taken a decision about the future of the Government contribution to the core funding of the FRC, we do not think it is right that the Government should have to provide funding just to provide that exemption from liability.
Clause 32 would allow us to consider whether Government funding is appropriate on its own merits. It replaces the existing exemption based on funding and a grant with a new power for the Secretary of State to exempt specified bodies from liability. That would mean there would be no requirement for a body to receive a grant to be granted an exemption. Instead, it would be based on their activities, such as setting standards, monitoring the quality of the accounts and audits and overseeing the regulatory activities of the accountancy and actuarial professional bodies. I think that exemption from liability is right for those carrying out those regulatory functions.
However, it is important to tell the Committee that that does not mean that anything goes. If something is done or not done in bad faith, or if it is unlawful under section 6(1) of the Human Rights Act 1998, then the exemption will not apply. Those are appropriate limitations but the payment of a grant from Government is not.

Toby Perkins: Again, this is an important clause. We have discussed many other markets and industries over recent months and during the course of the Bill’s progress so far. There are questions about the way that the audit industry operates in the context of competition. As we have heard in relation to other industries, we are conscious that a small number of firms dominate the profession. It is important to have a sense of competition in the industry. The Enron scandal is an example of what can happen. Following that scandal, the Companies (Audit, Investigations and Community Enterprise) Act was passed by Labour in 2004 to strengthen the system of regulating auditors by imposing independent auditing standards, monitoring and disciplinary procedures on the professional accountancy bodies.
Section 3 of the Act gave the Secretary of State the power to set up a regulatory body, which became the FRC, and other subsidiary bodies funded by industry and the accountancy profession and by Government rule were established by it. Granting immunity from legal action, other than judicial reviews, to regulatory bodies is fairly common. In particular, successive financial regulators have enjoyed that immunity, and the FRC has it currently. Removing the need to receive a grant from the Secretary of State may smooth over that process, so we will accept that.
However, will the Minister explain what has prompted a look at the issue now? Neither the explanatory notes nor the Second Reading briefing made that clear. The Library confirmed yesterday that it has not managed to find any comment on the reason for the clause. That has not been commented on by any of the professional bodies or in the accountancy press. Will the Minister elaborate on why she proposes this action? Have there been any representations to the Government expressing concerns about the proposals? If so, will she detail who expressed those concerns and what they were?

Jo Swinson: I welcome the support of the hon. Member for Chesterfield on this issue. We want to ensure that the legislation is fit for purpose. This is an example of an unnecessary additional piece of bureaucracy which gets in the way of deciding whether a body should receive grant funding. I reiterate that no decision has been made about whether that funding should continue. This is not prompted by us saying, “We definitely want to get rid of that.” There is an opportunity in the Bill to tidy up an anomaly. It is only one clause in a Bill which does lots of other things, but it is a useful opportunity to make a small but none the less important change.
The hon. Gentleman asked if any representations had been made expressing concern about this. That has not been the case. This change is generally understood to be very straightforward. On that basis, I hope that the Committee will be happy to accept the clause as part of the Bill.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33  - Regulations about procurement

Iain Wright: I beg to move amendment 57, in clause33,page28,line40,at end insert—
“(a1) duties to establish the past payment performance of potential parties to a contract, before contracts are entered into;
(a2) duties to ensure contracts entered into include the contractors’ obligations for prompt payment of their suppliers.”

This amendment aims to ensure that the payment performance of potential contractors are known before contracts are entered into and that contracts entered into require companies providing goods and services to public sector contracting authorities to pay their own suppliers promptly.

John Robertson: With this it will be convenient to discuss the following:
Amendment 77, in clause33,page29,line8,at end insert—
“(eA) duties relating to the assessment and publication of the extent to which apprenticeships and training opportunities were provided as a result of procurement of contracting authorities.
(eB) duties to publish reports about the amount and proportions of expenditure within procurement undertaken by a contracting authority in relation to—
(i) small and medium-sized enterprises; and
(ii) the area local to the contracting authority.
(eC) duties to disclose and explain any reasons why specified business or company, or specified category of business or company, may be excluded from consideration by a contracting authority, and
(eD) duties to publish information about the allocation, draw down, usage, sub-contracting or other third-party deployment, and results of the consumption of public resources by private entities.”
Amendment 78, in clause33,page29,line16,leave out “negative” and insert “affirmative”.

Iain Wright: I want to focus on amendment 77 in particular. Procurement is a hugely important function of government. Central Government spends about £45 billion a year on the purchase of goods and services. Local government spends about the same again—a quarter of its total annual expenditure. The NHS spends about £20 billion every year on goods and services. That is about one third of hospitals’ operating expenditure. In total, £230 billion is spent on the procurement of goods and services throughout the public sector. That is one pound in every three of total managed expenditure. Given the scale of spending, it is important that the taxpayer gets effective value for money. I stress the importance of value rather than mere focus on the lowest possible price.
I am a strong advocate of the notion that procurement should not only be used to ensure that goods and services are purchased, thereby fulfilling a somewhat narrow and short-term role. We also need to procure in a smarter way that reduces costs for public sector authorities. Procurement must be used as an effective tool for public bodies to secure important long-term strategic, social, economic and environmental objectives.
Subsection (5) specifies the means by which regulations can impose certain duties on contracting authorities. Those duties relate, for example, to the process through which contracts are entered into, compliance with the regulations, procuring in an “efficient and timely manner” and electronic invoices. Amendment 77 tries to articulate further the means by which regulations could be used to advance social and economic objectives.
I am very mindful of the conflict between centrally imposed, one-size-fits-all national regulations and a more flexible and responsive model which emphasises the importance of local decision making and devolved powers. Members will have seen the submission to our Committee from the Local Government Association, which aims to see clauses 33 and 34 deleted from the Bill. We will perhaps discuss those concerns in more detail during the clause stand part debate, but I hope the Minister will reflect on this passage from the LGA’s submission:
“Local authorities support the objectives that the Government is seeking to achieve with this legislation. They are keen to work with small businesses and voluntary sector organisations because this increases the potential for retaining value within the local economy. There is no need for legislation to address these issues and the continuing work of the LGA and the Local Government National Advisory Group for Procurement creating a National Procurement Strategy will do much more to enforce these messages.
We fear that over-regulation may have the effect of discouraging local authorities from thinking strategically about procurement opportunities and preventing access to markets for small scale providers who may not have the capacity to acquaint themselves with and respond to statutory procedures.”
In tabling this amendment, I do not wish to stifle innovation or impose unnecessary regulation, but I do want to address how certain objectives could be met. We propose to amend subsection (5) to include at the end of that subsection the need for the regulations to include a duty for contracting authorities relating to the assessment of the training opportunities and apprenticeships that were provided as a result of procurement by those authorities. I think that is quite simple and straightforward and I would be surprised if it did not command the support of the Minister and the rest of the Committee. Public authorities are specially placed, given the scale of their collective expenditure each and every year, to ensure that some of that spend is devoted to improving the training and career opportunities of people as a result of that contract. A more skilled work force is more productive and therefore more competitive in the domestic and international fields. The economy as a whole improves its performance as a result; society is enriched by having a more skilled population that can enjoy better pay and higher standards of living and we have increased tax receipts for the Treasury. What is not to like?
There is much good practice around the country from various public authorities. The TUC has championed over the past five years or so the one in a million campaign, which aims to ensure that, as far as possible, every £1 million of public spend on procurement results in at least one apprenticeship opportunity for a young person. Local authorities up and down the country are carrying out good practice here. The Minister, as a former apprenticeships Minister, will no doubt say that apprenticeships have risen in recent years. That is true, but I hope he will also accept my point, as one former apprenticeships Minister to another, that the number of young people enrolled on an apprenticeship has actually fallen over the lifetime of this Government.
In 2009-10, when we left office and I left the Department for Children, Schools and Families, some 117,000 people aged under 19 were studying for an apprenticeship. That has fallen over this Parliament by 4%. The proportion of young people embarking on an apprenticeship as a proportion of the total number of apprenticeships has been turned around, and not in a good way. In 2009-10, 42% of all apprenticeship starts were for people aged 19 or under. In 2012-13, that proportion was just 23%. Those changes might have something to do with the fact that Government pay 100% of the training costs if the apprentice is aged between 16 and 18, 50% if the apprentice is aged between 19 and 24, and only up to half if the apprentice is aged over 25.
From the evidence, it looks as though the Government have tried to reduce their financial exposure by skewing apprenticeship starts to those over 25. The amendment could be deployed to ensure that those young people can be given apprenticeships and fresh opportunities in training, so that they get a really good start on the career ladder. It would provide increased transparency for those contracting authorities to be able to publish, and therefore demonstrate to a wider audience, what that particular organisation was doing to use procurement to provide apprenticeships and training opportunities. That is the purpose of subsection (5)(eA).
Subsection (5)(eB) would provide a duty for the contracting authority to publish, and therefore improve transparency and opportunities for scrutiny, the amount and proportions of expenditure within the procurement function used to spend money both with small and medium-sized enterprises and the area local to that particular contracting authority.

Ian Murray: My hon. Friend mentions the contracting authority. He will be aware that last week we had an urgent question on the position of Tata Steel. When the Scottish Government were procuring the steel for the new Forth bridge—a huge contract—they decided to procure it from China, because it was the cheapest. In fact, 34 miles down the road was a steel plant where they could have procured the steel and, although more expensive, it would have had much wider impact on the local community.

Iain Wright: My hon. Friend makes an important point. He may recall that there were no Members from the Scottish National party present for that urgent question to question the Minister. Procurement can be used to enhance industrial capability—not to revive protectionism or ensure that a domestic firm or sector becomes flabby and uncompetitive, but to ensure that our industrial capability is enhanced as much as possible. The Opposition certainly agree with that idea, and I think the Minister does, as part of his industrial strategy. We need to go further and faster in pushing our industrial strategy to be able to do that.

Stephen Doughty: My hon. Friend is making some key points. Is he aware that many British military uniforms are procured in China? It is a significant number. In the past, many were made in Remploy factories in Dundee and elsewhere. Does that not strike him as slightly odd?

Iain Wright: That is a fair point. My hon. Friend has touched on a significant element of procurement, namely defence industrial strategy. Other countries around the world will be thinking, “If equipment from British defence firms is not good enough for the armed forces of the United Kingdom, which are held in very good regard, why should we buy it?” That sends out an important message.
There are a lot of positive moves in this regard, especially in local government. The FSB’s report of earlier this year, “Local procurement: making the most of small businesses”, revealed that local authorities spend around half of their total procurement expenditure with small and medium-sized businesses. Central Government have an awful lot to learn from local government: although the Government’s target is that a quarter of all spend should be with small and medium-sized businesses by the end of this Parliament, the current level is about 13%. They will miss their target by miles, to the detriment of many tens of thousands of small businesses up and down the country.
The FSB report found that 78% of small firms have not bid for or worked on any public sector contracts. They have been put off for several reasons, such as lack of awareness, a misplaced belief that Government would not be interested in dealing with a small firm and an inability to devote precious money and staff time to procurement exercises that are far too often seen as cumbersome, bureaucratic and downright hostile, and that involve pre-qualification questionnaires and other off-putting things. The CBI recently cited the example of a construction company that spent an average of £8,000 per PQQ. With 200 tender exercises a year, that put the pressure on the firm’s profit and loss account of an additional £1.6 million, for pre-qualification alone.
Research for the Specialist Engineering Contractors’ Group has found that its members’ firms spend more than 60,000 days a year filling in questionnaires. That is putting small businesses off bidding for contracts with public authorities. We need to ensure that bidding is made as easy as possible, including by publishing information and having a transparent relationship, so that the question can be asked, “What are you doing for small businesses?”
The purpose of proposed new subsection (5)(eB) is precisely to improve transparency. We hope that it will allow contracting authorities to explain how they are creating awareness of opportunities and engaging with and ultimately awarding contracts to smaller firms.
It is also important for reports such as that proposed in the amendment to include the amount of spend in a local area. There is incredibly powerful evidence for the multiplier effect on local economies of spending in local areas resulting from small businesses getting procurement opportunities. Research carried out for the FSB by the Centre for Local Economic Strategies found that responding authorities had collectively spent more than £8.7 billion on procuring goods and services with local firms in the previous year, generating nearly £4.5 billion of additional benefit for local economies; that is an additional 51p for every £1 spent. When the effects of local spend were analysed, it was shown that every £1 spent by a participating local authority with local SMEs generated an additional 63p of benefit for their local economy, compared with 40p generated by large local firms.
The £4.1 billion that participating authorities spent with local small and medium-sized businesses generated £2.6 billion of additional economic benefit for local economies. That means that small local firms generated over £746 million more benefit for local economies than large firms by effectively circulating that spend through their local economy’s supply chain. That is despite their receiving over £500 million less than large local firms. The benefit of them is vast.
I am particularly pleased that my region—the north-east of England—is a shining light in this regard. The Association of North East Councils has stated to me that 63% of the total procurement spend by local authorities in the region was with north-east-registered suppliers, while spend with the region’s small and medium-sized suppliers was 52%—slightly higher than the national average. The amendment is not about forcing contracting authorities down a specified path but about stating on the face of the Bill that authorities should let in the sunlight of information by disclosing to a wider audience how much is spent with small and medium-sized companies and how much is directly contributing to the local economy.
Proposed subsection (5)(eC) states that the regulations should “disclose and explain” why a specified business or category of business should be excluded from any procurement exercise. I arrived at the amendment through the disgraceful practice of blacklisting. This ugly scar on the face of our construction industry has existed for the past few decades and needs to be eliminated as soon as possible. The notion that workers have been systematically denied employment opportunities because they have been a member of a trade union, engaged in trade union activities or raised concerns over health and safety is an absolute disgrace. It smacks of the worst form of McCarthyism, and I strongly believe that procurement can be used to ensure that blacklisting is gone from the United Kingdom forever.
Public sector bodies in Wales can exclude blacklisters from bidding for public sector contracts under Welsh Government guidance that came into effect in September last year. The Welsh Labour Government sent out a procurement advice note to all Welsh public bodies, outlining the necessary steps that can be taken through procurement to help eradicate blacklisting. The guidance makes clear the circumstances in which Welsh public bodies can exclude blacklisters from bidding for a public contract. That guidance is clear, up-front and not sneaky or surreptitious. It allows everyone concerned to be fully aware of the circumstances in which a company will not be considered for the receipt of public funds and public contracts.
On introducing that guidance, Welsh Finance Minister and Labour Assembly Member Jane Hutt said:
“The use of blacklists is wholly unacceptable and I fully sympathise with the individuals and their families who have suffered a terrible injustice as a consequence of contractors engaging in this practice. Procurement is an important part of the overall policy toolkit of the Welsh Government. Under no circumstances is it acceptable for any business in receipt of public procurement expenditure to use blacklists. I am determined to take action in Wales. I trust that other Governments in the UK will take similar action if they have not already done so.”
I agree with every single word. If it is acceptable in Wales, why can we not have something similar in England? This seems incredibly straightforward to me.

Stephen Doughty: My hon. Friend is making a crucial point, which I wholeheartedly agree with. Would he also pay tribute to the many trade unions—including the GMB, of which I declare membership—that campaigned long and hard for that in Wales and have also campaigned at a UK level? We surely need to take that step against this disgraceful practice across the whole country.

Iain Wright: I absolutely agree. I also declare an interest, as I am a proud member of the GMB. I understand that other trade unions may be available, although I cannot think of any at the moment. My hon. Friend is absolutely right that there has been strong campaigning. It is about making sure that public procurement is used to ensure good, ethical behaviour. We have not seen that with blacklisting, and we need to see it now.
I mentioned that blacklisting was at the forefront of my mind when tabling the amendment, but Members might think of other issues that could exclude companies from bidding for contracts. Contracting authorities might think about firms that are late payers to their suppliers or refuse to pay their employees a living wage being included in those categories. Proposed subsection (5)(eC) would allow such categories to be included in the regulations and ensure transparency and clarity. Amendment 57, tabled by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), would provide for that with regard to late payment.

Ian Murray: My hon. Friend is giving examples of where other authorities are able to use the legislation on procurement to deal with bad behaviour and provide good businesses with opportunities they might not have had before, and also to deal with some big policy issues. He will be as disappointed as I am that the Scottish Government had the opportunity through their public procurement Bill to include the living wage as part of the conditions of gaining a public sector contract, yet they voted against the proposal.

Iain Wright: I thank my hon. Friend for raising that. It seems that the Scottish Government often talk one way and then in their actions, which they can take as a result of being in power, do something completely different. I am glad that my hon. Friend has exposed what they have done in that case.
Finally on amendment 77, subsection (5)(eD) would ensure that the regulations included
“duties to publish information about the allocation draw down, usage, sub-contracting or other third-party deployment, and results of the consumption of public resources by private entities.”
Put simply, the reason behind that is for people to be able to follow the money, find out where taxpayers’ pounds end up and ensure that proper transparency and accountability are available in all aspects of public procurement.
The Government have a clear policy of expanding the range of public services available to be bid for by private companies. That is one way of putting it—privatising our NHS is another. The Health and Social Care Act 2012 has dramatically increased the number of private contractors involved in NHS activity.
However, that sort of work is not confined to the NHS. The taxpayer often does not get a fair, or even a legal, deal with these contracting-out activities. The Committee may recall G4S and Serco, which were found to be charging the Government on their tagging contract for people who had been released or, in some cases, were dead. The cross-Government review instigated as a result of those irregularities—some would say fraud—concluded:
“The review’s overall conclusion is that in the majority of contracts there are weaknesses, some of which are significant, in the way these contracts are managed.”
It must be a concern for this House and the wider country that billions of pounds of taxpayers’ money are being spent without appropriate transparency or the ability to follow the money or ensure that there is consistency of approach and accountability between the various providers of public services.
The public sector is the victim of a very uneven playing field. As I said earlier, ever increasing parts of the NHS are subject to bids from private companies. Those companies are able to issue freedom of information requests from NHS trusts, gaining detailed knowledge of activity and cost. That information can then be used to undercut or outbid those same public sector bodies when procurement exercises take place, ensuring that those private companies can cherry-pick public services, which that cannot happen the other way round. That seems incredibly unfair.
The Select Committee on Justice examined that issue during the 2012-13 Session and expressed concern. The Information Commissioner, when giving evidence to the Committee’s inquiry, stated categorically:
“If more and more services are delivered by alternative providers who are not public authorities, how do we get accountability? The Prime Minister dealt with that the other day in one respect, by saying that it is about accountability, through tracking expenditure and outcomes. That is certainly part of it, but we nevertheless need to find ways of holding the alternative providers to account if they are trousering very large sums of public money and carrying out public purposes contracted by authorities.”
The purpose of proposed subsection (5)(eD) in amendment 77 is to articulate that concern, put it in the Bill, and support the Prime Minister in ensuring that it is possible to provide accountability through tracking expenditure and outcomes, and simply, as I said earlier, by being able to follow the money.
Amendment 78 is straightforward. I am a big believer in the affirmative resolution procedure when changes to regulations are proposed, and the amendment would simply change the Bill’s provision for the negative resolution procedure to ensure that the House had an opportunity to discuss such matters properly. I hope the Minister will look at the amendments favourably.

Matthew Hancock: I am grateful for the opportunity to debate. Clause 33 is about providing the Government with powers to regulate in a way that supports public sector procurement and helps small businesses get more access to the £230 billion of public sector contracts. That, in turn, will help the economy grow.

Chris White: Would the Minister describe how the Bill will help the social enterprise sector, which is one of the fastest-growing sectors in the economy?

Matthew Hancock: Absolutely. Measures that we have taken, such as reducing burdensome pre-qualification questionnaires from a huge amount of low-value central Government contracts, opening up bidding to smaller enterprises, and getting more areas of Government to be provided by other organisations, including social enterprises, have done a lot to get the social enterprise public provision sector going. However, I want to see more and I hope that the steps in the Bill will ensure that where we have taken administrative steps to get central Government to open up, we are now taking statutory steps to get the whole of the public sector to do so.

Toby Perkins: Does the Minister think that there should be a Minister with specific responsibility for social enterprise in the Department for Business, Innovation and Skills? Currently social enterprise is covered by the Cabinet Office. Should there be someone in the Department with that responsibility?

Matthew Hancock: It works pretty well at the moment on the grounds that in Business, Innovation and Skills we try to make it easier for organisations, whether they are profit-making or not, to do business. There is a range of social and profit-making enterprises: pure charities that rely entirely on donations and do not raise any direct revenue from the activity that they do; social enterprises that raise revenue from their activity but have a social purpose and do not make a profit; others that make profit but are social in their goals; businesses that are there for the primary purpose of making a profit but, in so doing, create social value; and businesses that do not particularly create social value but undertake their actions for profit and, in some cases, indirectly create social value by creating jobs. Our job in Business, Innovation and Skills is to have a strong framework for enterprise, whether that is for a social purpose or not.

Toby Perkins: I am grateful to the Minister for the definition, although I already understood what social enterprise was. My point was that we have a Minister for small business, which allows a Government focus on that, and we have a Minister for social enterprise, but he is not in Business, Innovation and Skills; he is in the Cabinet Office, which says that social enterprise is a different kind of thing. Does he take the point that if there was someone in the Department who had a specific focus on social enterprise, it might help to have that businesslike focus on supporting that important sector?

Matthew Hancock: I do not particularly think that it matters where that position sits. However, issues of social enterprise within the Department are a matter for the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for East Dunbartonshire. She has ministerial responsibility for issues relating to social enterprise but all of us in the Department have a duty and a role to improve the environment for business, whether that is a social enterprise, a profit-making enterprise or anything else in between—hence my description of the broad spectrum of organisations that we hope to support in flourishing.
The purpose of the clause, which is broadly defined, is to insist that public authorities will improve the ways that they procure. For example, in terms of benefits over time, we expect more proportionate and efficient procurement time scale; less bureaucratic processes, making it easier and cheaper for small businesses to compete and win more business; and more pre-market discussions between contracting authorities and businesses to help formulate procurement, meaning better management of contracts. The success of those reforms should be demonstrated in seeing an increase in the amount of contracts being won by smaller businesses. The hon. Member for Hartlepool raised the point on the proportion of contracts won across Government by smaller businesses. That has increased dramatically and, contrary to what he says, it is on track to reach a quarter, but my goodness, there was a lot of work needed. This situation was not in a happy state in 2010 and the number then was much lower.
However, we are determined to work to make that better and have a stronger and broader array of business, including small businesses, in the supply chain for the Government. After all, Government procurement is an enormous part of overall procurement.
I come now to the individual amendments. Amendment 57 would ensure that contracting authorities know about the historical payment performance of suppliers before they enter into public contracts with them. It would ensure that the companies entering into those contracts pay their own suppliers promptly. We agree that it is important for suppliers to be paid promptly and there are some circumstances in which a contracting authority can take account of a supplier’s past record on payment performance. In fact, we discussed earlier in the week the transparency that we are introducing around payment practices so, in a sense, that is taken care of. The measures in the Bill complement the wider package of regulations, not least the transposition of the 2014 EU procurement directive, which we will put into action in early 2015.
The new regulations will require 30-day payment terms to be passed all the way down the public sector supply chain. The essence of amendment 57 is to ensure that we have prompt payment in the public sector, and that it is cascaded down the supply chain. That will happen and will apply to all parties in the supply chain, from the largest to the smallest. In that way, the public sector will lead by example on issues of payment. The package of new regulations will also require the public sector to publish annually the number of invoices paid late to its tier 1 suppliers and show how it has performed in that area. The mystery shopper scheme, which we will come on to in clause 34, will also conduct spot checks on contracting authorities to ensure compliance with the prompt payment legislation and will publish the outcome of its investigations. Therefore, the measures that we are already taking forward, as part of either the Bill or the transposition of the EU directive, are already tackling the issues raised by amendment 57.
Amendment 77 is designed so that several additional reporting requirements can be placed on contracting authorities through regulations. We agree that transparency in reporting public sector procurement is important. Indeed, we are already working towards that 25% target for small business procurement. Having said that, the overarching aim of public procurement will always be to achieve value for money. In some cases that includes specific requirements. For instance, the Crossrail contract includes requirements for training and apprenticeships. HS2, which is holding a suppliers conference today, is also ensuring that we provide the necessary training, including through the new national college for rail engineering that we are putting in place. That is part and parcel of those contracts, but if that duty is put on the face of the Bill in the way suggested in the amendment, the difficulty is that it is essential always to ensure that the overarching aim is to achieve value for money for the taxpayer, because, after all, it is taxpayers’ money that we are spending.

Sheila Gilmore: In terms of value for money for the taxpayer, is it not reasonable to take a slightly wider view at times on exactly what that is and whether it is purely financial or not? A supported employment factory in my city closed down—it was not Remploy, it was separate—and lack of Government contracts was one of the things that caused it problems. However, the people who work there are costing the taxpayer a great deal of money when they are not working.

Matthew Hancock: I agree with the hon. Lady that the broader considerations for value for money should be taken into account. That is why it is sometimes right to put these details in the contract. Opposition Members mentioned the steel for the Forth road bridge. I understand their disappointment at the Scottish Government’s decision. It shows that the Scottish Government often do not act nearly as much for Scotland as they claim when they wrap themselves in the saltire. I want to reassure hon. Members that we remain very open to views on transparency measures. They are a part of the consultation that we launched last week on the implementation of the clauses.
Finally, amendment 78 is designed to increase the level of parliamentary scrutiny for any regulations under the clause by introducing the affirmative resolution procedure. I acknowledge the hon. Gentleman’s suggestion. I think the current negative resolution procedure provides for that parliamentary scrutiny, should it be required, because anyone can pray against a negative resolution. Nevertheless, I think this is worth considering. I want to do some more assessment of its impact and the likely frequency of amendment of these regulations.

Ian Murray: When the Minister referred to amendment 77, he did not mention the living wage. The UK Government and the Scottish Government seem to have an aversion to using public procurement to try to resolve the fundamental issue in this country of poverty pay.

Matthew Hancock: As I said, the overarching aim of public procurement must always be value for money. I am a supporter of companies paying the living wage when they can. I am a very strong supporter of the minimum wage and, indeed, have strongly supported the first rise in real terms, this month under this Government, since Labour’s great recession. I do not think it is within the parameters of this debate, but I would be delighted to spend all day debating the minimum wage and how this Government, through having a strong economic policy, can raise it. The Opposition proposition is to have a lower minimum wage, as confirmed by the former Labour Cabinet Minister, Alan Milburn, only this week. I do not think that this argument is necessary, but I certainly think that Alan Milburn was very surprised to see a lower proposition.

John Robertson: Order. I think we will go back to what we should be talking about and not Mr Milburn.

Matthew Hancock: I agree. With those assurances that these things will be taken into consideration in many cases and that I will look again at the case for an affirmative resolution, I hope that the hon. Member for Hartlepool will withdraw the amendment.

Iain Wright: I am grateful for the Minister’s undertaking to go away and look at amendment 78. On amendments 77 and 57, however, he has not gone as far as I would like to reassure me. He said the primary aim of procurement was to secure value for money. He is absolutely right, but how do we define value for money? Someone could buy a contract or purchase goods and services, say rolling stock for a train, and it could be at the lowest possible price, but it could be at the expense of the viability of the UK rolling stock manufacturing sector and tax receipts flowing through.
EU procurement allows a public contract to be given on two possible grounds: the most economically advantageous tender or the lowest price. When MEAT is used as a criterion it could be for things like quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost effectiveness, after-sales service and where that contract will be delivered. So on the Crossrail project and Bombardier, for example, it would have been possible to ensure that it was manufactured here in the UK.
To reiterate this important point, EU procurement processes allow social issues such as on-site vocational training to be taken into account. I wanted them articulated in the Bill and I am disappointed that the Minister has not agreed with us. On that basis, I would like to test the opinion of the Committee on amendments 57 and 77.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 10.

Question accordingly negatived.

Amendment proposed: 77, in clause33,page29,line8,at end insert—
“(eA) duties relating to the assessment and publication of the extent to which apprenticeships and training opportunities were provided as a result of procurement of contracting authorities.
(eB) duties to publish reports about the amount and proportions of expenditure within procurement undertaken by a contracting authority in relation to—
(i) small and medium-sized enterprises; and
(ii) the area local to the contracting authority.
(eC) duties to disclose and explain any reasons why specified business or company, or specified category of business or company, may be excluded from consideration by a contracting authority, and
(eD) duties to publish information about the allocation, draw down, usage, sub-contracting or other third-party deployment, and results of the consumption of public resources by private entities.”—(Mr Wright.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 10.

Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Iain Wright: Will the Minister comment on the revised EU procurement directive and how it affects clause 33?

Matthew Hancock: Yes. The procurement directive 2014 is being introduced in the UK and parts of it will be introduced in the new year. In particular, we want to ensure the 30-day procurement rule cascades down though the supply chain from public procurers. That change will come in early next year.
This is one of the most significant changes in the Bill, given the scale of Government procurement and the fact that it will cascade into private contracts between tier 1 suppliers and their supply chains. It will make a big difference to the culture. It is the culture change that we all seek.

Iain Wright: The Local Government Association said that clause 33 will allow central Government guidance and regulations to be imposed on local government, which is contrary to the principle of localism set out in the Localism Act 2011. Does the Minister agree?

Matthew Hancock: Several clauses in the Bill broadly cast the requirements for public sector procurement. It is important to improve public procurement terms in all public authorities. Therefore, legislating to insist that all public authorities follow a high-quality public procurement process is a legitimate and reasonable step to take at a national level. If some local authorities want to argue that it should be down to them, as a principle of localism, to choose to have less good procurement policies, then I think that is a mistake. I think it is better that we have high-quality public procurement rules across the whole of the public sector.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34  - Investigation of procurement functions

Question proposed, That the clause stand part of the Bill.

Matthew Hancock: We introduced a mystery shopper to ensure that those who face poor procurement practices have somebody they can approach to try to improve those practices. The clause establishes the mystery shopper on a statutory footing and will require public bodies to co-operate with its investigations.
We introduced the mystery shopper in 2011 as part of a range of measures to open up public sector procurement. From the outset, it has operated right across the public sector in England and in non-devolved matters elsewhere in the UK. It provides an easy-to-use route for suppliers to raise concerns about procurement practices. Importantly, small businesses are able to make their concerns known to the mystery shopper service without revealing their identity to the body they have concerns about.
The mystery shopper has received more than 700 complaints, and in 64% of those cases we found poor procurement practice. Last year, it started spot checking procurement documents online. So far, more than 400 checks have been undertaken and many recommendations for improvement have been made to ensure that procurements are small-business-friendly and that unnecessary barriers are removed.
Too often, the mystery shopper has found overly long documents that ask irrelevant questions, which cost time and money, especially for small businesses. It found that public bodies are often over-reliant on a company’s turnover or credit check rating when they assess its financial strength and ability to fulfil a contract. The documents most complained about are pre-qualification questionnaires. The way they assess bidders’ financial strength is frequently raised as a barrier to small businesses bidding for work.
The mystery shopper has made an excellent start, and its impact is increasing. However, we want the service to have more teeth so that it can tackle poor procurement practice across the public sector. In some cases, we found that public bodies are reluctant to co-operate with the mystery shopper and give it the information it needs to form a judgment about a complaint or a spot check it has carried out. That is not on. The clause will place a duty on those bodies to co-operate and supply that information. That, in turn, will give small businesses that use the mystery shopper a better service and help remove barriers to their bidding for contracts. This is all part of our broad work to improve public procurement and to open it up to small businesses. It includes important measures for a robust investigation of procurement practices that raise barriers for small businesses.

Iain Wright: I agree with this principle. I think it is a good one and putting it on a statutory footing seems to be a sound decision. I have some questions for the Minister. Now that it will be in statute, how will it be communicated so that small firms have the opportunity to take advantage if public procurement has not been carried out as they would like? Linked to that communication, if there is increased capacity, how will that be dealt with? Is the Minister confident that sufficient resources will be provided to ensure that the mystery shopper scheme continues to be a success?

Matthew Hancock: Yes. We are publishing results of the mystery shopper on the gov.uk website and I hope that support for it, expansion of it and knowledge about it will be warmly welcomed as part of the Bill. Communication to small businesses, not least through small business bodies, will ensure that everyone knows about it.
We also communicate on social media about the mystery shopper service. The fact that it has already had some take-up, even before it is on a statutory footing, demonstrates that people know about it, but the more people who know about it, the better.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mel Stride.)

Adjourned till Tuesday 28 October at five minutes to Nine o’clock.
Written evidence reported to the House
SB 44 Institute of Chartered Accountants in England and Wales
SB 45 Royal Institute of Chartered Surveyors